Big Banks and Investors Seem to Agree That Crypto Is a Solid Inflation Hedge
by Tor Constantino | Published on Nov. 1, 2021
With inflation climbing, now might be the time to jump on the Bitcoin bandwagon.
The latest numbers from the U.S. Labor Department show that consumer prices moved higher in September, to 5.4% from a year prior. That matches the highest levels since 2008 -- marking the fifth straight month of 5% or more this year.
This ongoing inflationary uptick is a result of several factors, including money-printing by the U.S. Treasury, trillions of dollars in federal spending, and global supply chain snarl-ups.
The U.S. Federal Reserve and Treasury Department are claiming this trend is merely temporary, while other money mavens say it could become more of an enduring financial fixture.
While economic experts dither back and forth over inflation's duration, we can all agree that inflation drives up costs while eroding the value of savings.
How to stay ahead
This double whammy to our personal dollars leaves many of us wondering what are the best investments to stay ahead of inflation's erosive effects. Traditional wisdom would place bets on real estate income, commodities, and inflation-protected securities, with gold usually the top pick.
However, it seems that Bitcoin is joining that list as a viable alternative.
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In a note to its clients last week, JPMorgan wrote, "Institutional investors appear to be returning to Bitcoin, perhaps seeing it as a better inflation hedge than gold," as reported in Bitcoin Magazine.
Bitcoin has been on a steady climb in recent weeks, crossing the key psychological barrier of $60,000 per coin -- a pricing level it hasn't seen since its all-time high of almost $64,000 back in April. And while past performance is no guarantee of future returns, Bitcoin has averaged a more than 200% return every year for the past 10 years, beating every other asset class. It seems to be doing something right.
As of this writing, Bitcoin's total market capitalization has topped $1.1 trillion -- higher than JPMorgan's market cap, despite the fact that its outspoken CEO, Jamie Dimon, called Bitcoin "worthless" days ago. (He may have missed last week's note from his analyst team.)
Regardless, institutional investors seem to be piling into cryptocurrencies. Coinbase, the largest U.S.-based cryptocurrency exchange, said during its first quarter earnings call in April that it saw a more than eight-fold increase in revenue from institutional investors over the prior year.
Financial planners are also jumping on the Bitcoin bandwagon. The Financial Planning Association's 2021 Trends in Investment Survey found that 14% of survey respondents recommend cryptocurrencies as a way to offset losses and beat inflation.
And gold-loving retail investors are moving money into cryptos as well. Bloomberg reports that households in India collectively hold more than 25,000 tons of gold -- one of the largest aggregated gold reserves in the world. But, according to on-chain analytics company Chainalysis, individual investors in India increased their positions in crypto from roughly $923 million in April 2020 to almost $6.6 billion through May 2021.
So while inflation seems to be increasing and sticking around, Bitcoin seems to be doing the same.
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Tor Constantino has holdings of Bitcoin and Ethereum.